Pharma weightage rises as domestic mutual funds turn buyers

Published: May 20, 2020 12:15:28 AM

Even as investors have increased bets on the sector that was battling regulatory issues in the US, growth may take some time to come back.

In the last three months, MFs have increased the weightage on the pharmaceutical sector by 294 bps. (Representative image)In the last three months, MFs have increased the weightage on the pharmaceutical sector by 294 bps. (Representative image)

By Urvashi Valecha

The pharma sector’s weight on Nifty50 has risen to 3.7% from 2.17% in January as institutions have been buying these stocks. Domestic mutual funds, especially, have been tanking up on defensive stocks since the start of the rout in global equities towards the end of February.

Among institutional investors, mutual funds (MFs) have taken big bets on pharma stocks with the sector seeing a 95-basis point increase in weightage, Emkay Global Financial Services said in a report.

The brokerage further said, in April 2020, the sector is now the biggest overweight for MFs. In the last three months, MFs have increased the weightage on the pharmaceutical sector by 294 bps. The report also showed that foreign portfolio investors (FPIs) had bought consumer goods stocks and pharmaceuticals in April. Another report by Motilal Oswal Institutional Equities said the healthcare sector’s weightage in MFs had reached a 40-month high.

Gopal Agrawal, head of macro strategy and senior fund manager, DSP Mutual Fund, said, “In between, the sector weight of pharma companies had fallen dramatically. We realised that the sector had good value, domestic pharmaceutical companies were much better than some consumer goods companies too. However, with the recent rally in pharmaceutical stocks, there is no longer an undervaluation and now is the time to be cautious.”

Even as investors have increased bets on the sector that was battling regulatory issues in the US, growth may take some time to come back. The Indian pharmaceutical market (IPM) in April saw slower growth. The IPM was also earlier going through a consolidation phase which has now exacerbated with the Covid-19 pandemic.

According to Nomura, in April 2020 the Indian pharmaceutical market recorded a 10.7% decline year-on-year. “The India pharma market is undergoing consolidation, which has gotten an additional nudge due to the Covid-19 pandemic. The bigger companies, the bigger brands and bigger distributors are likely to gain market share,” Nomura said. The brokerage also said in fiscal 2021, volumes would likely fall by 4%, which would be compensated by a price increase of 5% and new launches could contribute another 1%.

Nifty Pharma, which is the benchmark pharmaceutical index, ended the day flat down by 0.09%.

According to Deepak Jasani, head – retail research, HDFC Securities, pharma stocks could see a consolidation before they move up, helped by some fresh positives.

“The next one or two quarters may be difficult for the pharma companies since they are likely to see a decline in volumes. However, after the volumes start picking up, the stock prices may start performing again.” According to Jasani, institutions started buying pharmaceutical stocks because they wanted to stick to defensives.

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